Modi Mission 300

Modi Mission 300

Who is putting the top 30 stocks Sensex in the running to scale 23,000 when the general election results are announced? Will the new Government build infrastructure China style to finally cater to a population of over 1.2 billion and counting? The optimism is based on much more than getting rid of a discredited and tired incumbent. India is seen to be at last on the threshold towards becoming a developed country.

Besides, the rally so far accounts for just a 11% rise in US dollar terms for foreign investors, and there is much perceived undervaluation still on the table due to a weak rupee. Many FIIs expect a further 20% increase in US dollar terms from here just to even the score.

The stock market reached 22,551 points a couple of days ago, and the moribund but crucial small-cap and midcap stocks too are moving up at last. The latter, partly because the FIIs are reaching their statutory limits for large-cap stocks, and have no choice but to broaden their stock picks. There will be some fatigue and profit-taking from time to time of course, but the graph seems to be on the up and up.

The strengthening rupee, 20% or more coming up given a stable new Government, will make it better for FIIs investing now when it comes time to cash out. This FII money on top of the ever reliable NRI remittances is adding to our hard currency reserves too.

Congress may claim that the stock markets are rallying because of its belated ‘good performance’, but not one analyst seems to agree. Even the Current Account Deficit (CAD), brought under control now, begs the question why it wasn’t done earlier. Besides, it has only been achieved by choking imports including gold, and kicking the huge welfare debt can down the road, to the next fiscal and beyond.

Besides, there is the scandal of the massive non- performing assets (NPA) of the public sector banks, the highest ever, that are blithely being written off now. This is combined with the highly stressed borrowing of most corporates, running into trillions, necessitating loan restructuring. Both are sinister time-bombs that could collapse the banking system, created entirely under UPA management, and tell a murky and collusive story of its own.   

So, an altogether unconvinced set of observers, fed up of being fed half-truths and outright untruths, are saying that in any case stock markets rally on expectations of a better future. And in this instance, a future that involves a Modi-led BJP/NDA Government. Many noted international investment banks/brokers like Goldman Sachs, CLSA, Nomura etc. have been categorical in welcoming this. And also why there is a flood of new dollars coming in.

Every successive Opinion Poll is giving a few more seats to the BJP/NDA combine, bringing it ever closer to the half-way mark.  A lot of this is due to the Modi emphasis on development, jobs, infrastructure, growth, high speed trains, 24x7 electricity and water, healthcare for all, education, women’s empowerment , quick decision making, streamlining of processes, good governance, speed of implementation , checking  corruption, responsiveness of government etc. to the exclusion of the old mandir-masjid politics that puts  most people off.  

The BJP’s prospective post-poll allies are also looking good, particularly in the South of India and in West Bengal. It is not surprising therefore that every Congress worthy is looking shell-shocked on TV. In fact, many of the established spokespersons have gone missing in action, substituted by new and unknown horses for these now altogether perilous courses.

It is a rare general election indeed when the outcome is to all intents and purposes is known and predetermined in advance.  Even the  visa denying  United States has reluctantly come to the conclusion that a Modi Government is imminent like it or not, and have decided to change their UPA leaning Ambassador. The new person might even be a person of Indian origin, in fact a Gujarati, according to recent reports.

The anti- incumbency and anger being faced by the Congress Party is almost universal, with rare pockets such as Assam to offer it some comfort. The strain of being blamed squarely for the huge price rises and inflation and the suffering it has caused nation-wide is writ large on the faces of the Gandhi dynasty, hobbled further by the alleged corruption close to home in the matter of Robert Vadra.

The UPA has truly lost its credibility, and there is nothing they can do to get it back. All their poll promises, the campaign rhetoric is falling on deaf ears. There is a perceptible gap between Congress words and deeds, the enforced jollity and grim reality, the sonorous promises and bitter truth.

Modi himself, sensing the popular mood, has upgraded his target to over 300 seats, instead of the erstwhile 272 plus. He declared this at a recent rally in Bareilly to which he arrived, uncharacteristically, hours late, as the Civil Aviation Authorities kept both his helicopter and aeroplane waiting for hours on the tarmac in New Delhi.

At 300 seats, the BJP/NDA and their post-poll allies will, of course, be able to blow away the threat of  ongoing efforts to cobble together a Third Front Government propped up by a cynical Congress. There are, in any case, truly intractable mutual incompatibilities between the prospective constituents, and the perception that it cannot function or last.

The money coming in to the Indian stock and debt market is almost exclusively foreign and institutional now. The Sensex gained 6% in March. It remains to be seen how much it rises in April, but there is no retail or local participation of note. This lot, which constitutes 80% of the investment community, both numerically and financially, may well be waiting till after May 16^th to join the party.

(969 words)

April 3^rd, 2014

Gautam Mukherjee